Parametric coverage viewed as option for hail, tornado coverage

Amid higher severe convective storm losses, insurance buyers continue to explore alternatives such as parametric coverage.

While there has been significant growth in parametric hail coverage that provides fast payouts to businesses in the event they are hit by significant hailstorms, the market for parametric tornado coverage has been building more gradually.

Michael LaRocca, New York-based head property & specialty North America for Swiss Re Corporate Solutions, part of Swiss Re Ltd., said a few parametric tornado coverages have been deployed in response to interest from policyholders. 

“We’ve started to develop, and we’ve deployed a few. We haven’t sold a lot yet,” he said.

Appetite for parametric coverage in North America is generally driven by wind, followed by quake exposures, Mr. LaRocca said. 

Parametric coverages, if structured appropriately for the right risks, can be useful, but it can be tough to get buy-in from lenders, said Jeff Buyze, Fort Lauderdale, Florida-based vice president, national property practice leader, at USI Insurance Services LLC.

“The number that is bound are very low compared to those that are quoted. A lot of that still has to do with pricing,” Mr. Buyze said. 

Parametric coverages might be used, especially if an organization has a lot of aggregate value in a certain location, said Penni Chambers, Dallas-based vice president of risk management at real estate developer Hillwood, a Perot company.

But the question remains how insurers will model the peril so they can price risk that is so unpredictable, she said.